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MBA 570 Summer 2011

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How much long-range capacity is needed When more capacity is needed Where facilities should be located (location) How facilities should be arranged (layout) Facility planning answers:

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Maximum output of a system in a given period (general definition) May be units, hours, dollars, sq. ft. etc. Example: Tons of steel per month Effective capacity: Maximum output given standards, product mix, etc. Rated capacity: Maximum usable output given utilization & efficiency RC = (Capacity)(Utilization)(Efficiency)

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How would you define capacity for the following firms (e.g., steel mill, tons of steel per day): Beer brewery Auto plant Restaurant Warehouse Grocery store

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Beer brewery: Barrels of beer per year (output) Auto plant: Cars per week (output) Restaurant: Customers per hour (output) or number of seats (input) Warehouse: Square feet of space (input) Grocery store: Square inches of shelf space (input)

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Forecast Demand Compute Needed Capacity Compute Rated Capacity Evaluate Capacity Plans Implement Best Plan Qualitative Factors (e.g., Skills) Select Best Capacity Plan Develop Alternative Plans Quantitative Factors (e.g., Cost)

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Add Facilities Add long lead time equipment Schedule Jobs Schedule Personnel Allocate Machinery Sub-Contract Add Equipment Add Shifts Add Personnel Build or Use Inventory Long Range Planning Intermediate Range Planning Short Range Planning Modify CapacityUse Capacity * * *Limited options exist

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Capacity: The throughput, or number of units a facility can hold, receive, store, or produce in a period of time. Utilization: Actual output as a percent of design capacity. Effective capacity: Capacity a firm can expect to receive given its product mix, methods of scheduling, maintenance, and standards of quality. Efficiency: Actual output as a percent of effective capacity.

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Actual (or Expected) Output = (Effective Capacity)(Efficiency)

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Measure of planned or actual capacity usage of a facility, work center, or machine

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Measure of how well a facility or machine is performing when used

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Forecast demand accurately Understanding the technology and capacity increments Finding the optimal operating level (volume) Build for change

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1. Making staffing changes (increasing or decreasing the number of employees) 2. Adjusting equipment and processes – which might include purchasing additional machinery or selling or leasing out existing equipment 3. Improving methods to increase throughput; and/or 4. Redesigning the product to facilitate more throughput

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Approaches to Capacity Expansion Expected Demand Time in Years Demand New Capacity Capacity leads demand with an incremental expansion Capacity leads demand with a one-step expansion Capacity lags demand with an incremental expansion Attempts to have an average capacity, with an incremental expansion

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Approaches to Capacity Expansion Expected Demand Time in Years Demand New Capacity Capacity leads demand with an incremental expansion

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Approaches to Capacity Expansion Expected Demand Time in Years Demand New Capacity Capacity leads demand with a one-step expansion

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Approaches to Capacity Expansion Expected Demand Time in Years Demand New Capacity Capacity lags demand with an incremental expansion

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Approaches to Capacity Expansion Expected Demand Time in Years Demand New Capacity Attempts to have an average capacity, with an incremental expansion

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Vary prices Vary promotion Change lead times (e.g., backorders) Offer complementary products Managing Existing Capacity Demand Management

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Time (Months) Sales (Units) Snow- mobiles 0 1,000 2,000 3,000 4,000 5,000 JMMJSNJMMJSNJ

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Time (Months) Sales (Units) Jet Skis Snow- mobiles 0 1,000 2,000 3,000 4,000 5,000 JMMJSNJMMJSNJ

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Time (Months) Sales (Units) Jet Skis Snow- mobiles Total 0 1,000 2,000 3,000 4,000 5,000 JMMJSNJMMJSNJ

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Time (Months) Sales (Units) Jet Skis Snow- mobiles Variation is reduced by combining demands Total

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Vary staffing Change equipment & processes Change methods Redesign the product for faster processing Managing Existing Capacity Capacity Management n Vary prices n Vary promotion n Change lead times (e.g., backorders) n Offer complementary products Demand Management

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